Correlation Between Marks and Shoprite Holdings

Can any of the company-specific risk be diversified away by investing in both Marks and Shoprite Holdings at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Marks and Shoprite Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Marks and Spencer and Shoprite Holdings Limited, you can compare the effects of market volatilities on Marks and Shoprite Holdings and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Marks with a short position of Shoprite Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marks and Shoprite Holdings.

Diversification Opportunities for Marks and Shoprite Holdings

0.42

Correlation Coefficient

Marks  Shoprite Holdings

Very weak diversification

The 3 months correlation between Marks and Shoprite is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Marks and Spencer and Shoprite Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Marks is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Marks and Spencer are associated (or correlated) with Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of Marks i.e., Marks and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Marks and Shoprite Holdings

Assuming the 90 days horizon Marks is expected to generate 1.29 times less return on investment than Shoprite Holdings. But when comparing it to its historical volatility, Marks and Spencer is 1.49 times less risky than Shoprite Holdings. It trades about 0.11 of its potential returns per unit of risk. Shoprite Holdings Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  346.00  in Shoprite Holdings Limited on September 23, 2024 and sell it today you would earn a total of  1,214  from holding Shoprite Holdings Limited or generate 350.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Marks and Spencer  vs.  Shoprite Holdings Limited

Marks and Spencer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Marks and Spencer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Marks may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Shoprite Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shoprite Holdings Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shoprite Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Marks and Shoprite Holdings

The main advantage of trading using opposite Marks and Shoprite Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marks position performs unexpectedly, Shoprite Holdings can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Shoprite Holdings will offset losses from the drop in Shoprite Holdings' long position.

The idea behind Marks and Spencer and Shoprite Holdings Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.